Chinese Yuan Not Serious Threat to US Dollar Hegemony, Says Economist

Last week, Benn Steil, who’s the director of International Economics at the Council on Foreign Relations, wrote an opinion piece for the Protect Syndicate website. The article, called “The Real Cost of De-Dollarization,” talked about the role of the Chinese yuan as a possible replacement for the U.S. dollar. Steil argued that the real danger to the U.S. dollar’s global position doesn’t come from other currencies like the yuan. Instead, he thinks the threat is closer to home, stemming from U.S. government actions like the recent issues with the federal debt ceiling and the downgrade by Fitch Ratings.

The Chinese renminbi, which accounts for less than 3% of global reserves, is not a serious threat to dollar hegemony.

“Given China’s deteriorating legal protections, stringent capital controls, and relatively underdeveloped bond markets — from which foreign investors pulled a record $91 billion in 2022 — the renminbi is still far from a credible store of value,” he detailed. “The currency’s internationalization stalled a decade ago when capital inflows driven by expectations of perpetual appreciation came to an end.”

Steil added:

So, whereas the dollar’s continued dominance should not be taken for granted, there is currently no viable single alternative. Instead, many commentators have pointed to the probable emergence of a ‘multi-currency’ world in which the dollar plays a much-diminished role.

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